Q2 2021 Sunopta Inc Earnings Call
Yeah.
Good morning, and welcome to send off the second quarter fiscal 2021 earnings conference call by now everyone should have access to the earnings press release that was issued this morning and is available on the Investor Relations page on some of this website at W.
W. W. Dot son of the Dot Com. This call is being webcast and its transcription will also be available on the company's website. As a reminder, please note that the prepared remarks, which will follow contain forward looking statements and management may make additional forward looking statements in response to your questions.
These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. We refer you to at all of risk factors contained inside not just press release issued this morning the.
The company's annual report filed on form 10-K, and other filings with the Securities and Exchange Commission for more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward looking statements. The company undertakes no obligation to publicly correct or update.
The forward looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws.
Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures. During this teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today also.
So please note that unless otherwise stated all figures discussed today are in U S dollars and are occasionally rounded to the nearest million and now I'd like to turn the conference call over to sign up to CEO, Joe and then.
Good morning, and thank you for joining us today with me on the call is Scott Huckins, our Chief Financial Officer.
Our second quarter result of nearly 10% revenue growth and 61% EBITDA growth demonstrates the strength of our strategy and the quality of our execution against our corporate priorities.
These priorities are portfolio transformation ex.
Celebrating customer centric innovation and doubling the plant based business.
We continue to emphasize top line growth in our plant based business and improving profitability and free based the.
The significant revenue increases we are realizing in plant based beverages reflect our competitive advantages combined with continued strong consumer demand.
Our fruit based business unit. The progress we continue to make is being driven by internal efforts to optimize customer capacity operating costs and pricing.
Before I began unpacking, our Q2 results.
Let me offer three key takeaways from the quarter.
First the momentum in plant based beverages remains strong and continues to be led by oak based products and by our core customers.
Second based on our business development pipeline with existing and new customers. We remain optimistic about the long term growth prospects for our plant based portfolio.
Third, though we remain very focused on co manufacturing our portfolio of owned brands in plant based is also performing well delivering solid gain helping us bring innovation to market faster and increasing in importance in both revenue and margin.
Let me first start with the high level view of key accomplishments from the second quarter, and then I'll share some of the details by segment.
Overall second quarter results were ahead of the outlook, we shared with you on the Q1 call.
For the second quarter total revenue was up nine 7% versus Q2, 2020 to 202.3 million and up $17 five per cent compared to Q2.2019.
Gross margin improved by 40 basis points, the 13% and adjusted EBITDA advanced 60.8 per cent to $16.1 million or eight per cent of revenue.
Plant base continued to be our key growth driver, while our focus in fruit based remained on improving productivity and profitability and we demonstrated the significant leverage inherent in our model with adjusted EBITDA, increasing at a much faster rate than revenue.
We are pleased with the progress of our strategic initiatives around expanding capacity and plant base and improving productivity across the network.
Manufacturing is core to our business and the progress we have made in transforming our operations has been impressive.
From multiple capacity expansions in plant based to footprint optimization and automation and fruit, we're building real competitive installation in our business.
The added production, we brought online in plant based in the fourth quarter of 2020 is performing well, giving us headroom to aggressively pursue new business opportunities.
Our Allentown project is also tracking the plan ex.
Specced it to be operational in late Q4, and we are starting a similar sized project in Modesto.
Automation implemented and our plan is driving solid gains in productivity and making us more nimble around core capacity utilization.
We have made considerable progress in consolidating our fruit based operation with the exit of our South gate facility in July and closure of our Santa Maria facility in Q1.
Finally, we've made significant progress derisking, our fruit based operations, including sourcing three times more fruit from South America and processing over 50% more in Mexico versus a year ago.
The trends around plant based combined with our strategically advantaged capabilities has set the stage for yet another expansion of our plant based operations.
I'm pleased to announce that we are in the final stages of negotiating a lease for the construction of the new Mega facility in the Dallas Fort worth area to support long term growth in our plant based business.
This Greenfield 275000 square foot facility is by far the largest capex project we've ever undertaken.
The capacity to grow as a core element of our five pronged service offering and we are excited that this capacity will continue to allow our customers and our brands to keep pace with consumer demand.
The plant is expected to be operational by late 2022.
And we will augment the incremental capacity, we brought online at the end of 2020, along with the Allentown Modesto expansion projects.
In aggregate the projects, we have in motion now effectively give us the ability to double the business.
We have intentionally designed that project the developed in phases at customer demand rises.
In addition to supporting continued growth in our core business. This new facility broadens, our geographic footprint adds new capabilities and further strengthens our competitive position as a partner for our customers.
With this new plant, we will have facilities in the east.
The west the Midwest and now the south, allowing us to offer a very competitive cost.
An improved environmental footprint.
Redundant manufacturing capabilities to lower risk for our customers the.
Out of scale will improve our margin profile over time as we expect to realize further supply chain savings by having a more efficient national network.
Now, let me turn to our segment results.
Starting with our plant based segment, we have three strategic priorities.
The first build our competitively advantaged business model around quality capacity cost customer service and R&D.
Second build the robust ingredient business to enable further participation and refrigerated plant based milks and third build of multi pronged go to market business that includes co manufacturing private label and own the brands.
Results in the second quarter show significant progress on all measures, including a 21, 4% increase in plant based revenue, which was on top of an 11, 9% increase in the second quarter of 2020 generating a two year stack of 33 three per cent.
Now, let me share of bit of retail sales category data to help frame our results.
The plant based beverage category in retail continues growing despite overlapping the COVID-19 frenzy of Q2.2020.
For the 13 week period that aligns with our Q2 plant based milks increased three 7% overall due to continued strong sales of oat milk.
From a foodservice standpoint plant based milk arent ingredient and coffee beverages, and therefore, we don't have the syndicated data for foodservice. The based on our sales results. It is safe to say there were robust sales of plant based coffee drinks in foodservice.
There are three primary drivers of our growth in the quarter.
From a product standpoint, it was the oat milk.
From a channel standpoint, it would foodservice.
And from a go to market standpoint, it was both our core co manufacturing customers and our own brands.
Oh milk accounted for half of our growth in Q2, which is similar to what we experienced in Q1.
Importantly, the gains we are realizing adult milk are coming from both existing customers like Starbucks as well as winning new business.
In addition to strong foodservice new business.
We signed a multiyear extension to continue supplying oat milk to a large CPG company, who is currently the market share leader in retail oat milk.
Their sales success, along with strong results from other customers provide authentic marketplace testimony to the quality of our oat milk and the proprietary manufacturing process, we have built to help our customers differentiate their product offerings.
It is quite likely that the demand we're seeing for our industry, leading oat milk will necessitate the construction of yet another out processing system in the not too distant future and would be in addition to the Texas project.
As I mentioned, we will face these project in a good capital stewards.
From a go to market standpoint, we saw very strong growth in our top five customers with sales growth of 49% in the quarter.
As it relates to our own brands. The addition of dream and West Soy, which we acquired in mid April we're additive to plant based revenues in the second quarter accounting for approximately four percentage points of our segment growth.
In addition to this our recently launched brand of organic oat milk Creamer zone is seeing strong sales velocities in both retail and E Commerce and is gaining distribution with a line of sight to being in over 3500 stores by year end for.
From a channel perspective, our growth in plant based during the second quarter was more concentrated in foodservice, which has been experiencing of rebound versus last year. When COVID-19 was significantly pressuring this channel moving to our fruit based segment. Our three strategic priorities are number one derisking the business through.
Graph of diversification customer pricing programs and better grow of relation.
Number two is it focused on becoming the low cost operator in frozen fruit through automation and footprint reengineering.
And number three is to evolve the portfolio via innovation towards more value added offerings.
We made solid progress against all three of these in the quarter.
We've been focused on supply chain reengineering to lower costs and improve margin, which is expected to enable us to deliver sharply higher earnings when revenue growth returns to a consistent upward trajectory.
Second quarter results and fruit based where illustrative of these efforts.
The fight revenue being down one 9% we showed improvement in both segment level gross margin as well as segment level operating margin.
Similar to plant based the normalization of at home consumption trends contributed to lower retail sales volume of frozen fruit, partially offset by increased foodservice volume.
For the 13 week period that coincided with our result retail frozen fruit category sales were down one 7% due to lapping significant COVID-19 driven growth in the prior year period.
It's a much different story and fruit snacks with the category of experiencing strong growth of $10 four per cent.
Our initiatives around rationalizing marginally profitable customers and products for another factor pressuring fruit based revenues in the second quarter.
Finally supply constrained with certain fruit varieties negatively affected revenue from blended fruit offerings. This was also a headwind in Q1, so not a surprise.
Partially offsetting these factors for the strong performance in our innovation driven fruit snacks business, reflecting volume growth from new business development and very strong consumer demand.
Finally increased commodity pricing for raw fruit provided of 3% lift to the second quarter fruit based revenues as we passed along higher cost to customers.
From a customer standpoint, lower distribution from large retail customers, coupled with supply challenges negatively affected our frozen fruit business in Q2.
Conversely, significant growth, especially from large CPG customers in snacks drove revenue and margin increases.
Our top five strategic customers and snacks collectively grew 76% in Q2 versus the same time in 2020.
As part of our effort to evolve the portfolio through innovation tomorrow value at we are launching the line of value added fruit based breakfast bowls. This is a rapidly growing segment with brands like tattooed share.
We are excited about the innovation, we are bringing to this segment.
Some of the bowls, we are launching well have a fruit smoothie base whole fruit and toppings like quinoa, Chris and Granola. We are also launching GSE bowls, which feature of GSE base and the whole blueberries.
Consistent with our agnostic go to market approach this product innovation will launch in some retailers under our brand Sunrise growers. It will launch of the private label offering and other retailers and we are also in development of co manufacturer of this product for a large CPG company.
We are currently in test with the major club store chain under the Sunrise growers brand and we have authorization from several customers starting in Q4 of 2021 and rolling into 2022.
In summary, we continue executing at a very high level across the organization through the first half of 'twenty 'twenty. One we've delivered on our plan of aggressive plant based growth higher margin and substantial growth in adjusted EBITDA.
We've been winning business with new customers, capturing additional business from existing customers, adding capacity and expanding our portfolio of products.
With our strong balance sheet, so not the remains well positioned for substantial long term growth and some of the fastest growing CPG category.
All of which supports my continued optimism for the future.
We remain committed to the previous 2021 outlook and believe our strategies and our team will continue to deliver as we seek to fuel the future of food.
Now I will turn the call over to Scott to take us through the rest of the financials Scott.
Thank you very much Joe and good morning, everyone. We're excited to report another solid quarter.
As Joe mentioned second quarter revenues of $202.3 million were up nine 7% year over year of strong volume gains led to a 21, 4% increase in plant based.
Route based had a modest decline of one 9% as we continue to focus on rationalizing marginally profitable business.
Adjusted EBITDA increased 68% to $16.1 million.
Our strategic focus on growing plant based and optimizing fruit created significant leverage across our business.
Gross profit was $26.3 million for the second quarter of 2021.
An increase of $3.1 million for 13, 2% compared to $23.3 million during the second quarter of 2020.
The plant based segment accounted for $3.2 million of the increase in gross profit due to higher volumes. The addition of the dream and what sort of brands and productivity improvements within our plant based beverage and ingredient operations.
Gross profit in the fruit based segment was basically flat as lower volumes of retail frozen fruit.
Higher strawberry and transportation costs and unfavorable foreign exchange impacts from the stronger Mexican peso were largely offset by volume growth and fruit snacks and fruit based toppings, along with productivity gains in the plants.
As a percentage of revenues second quarter gross margin was 13% compared to 12, 6% a year ago of for.
40 basis point increase.
The plant based segment gross margin was 17, 9% down only 30 basis points from last year.
This is the very strong result, considering plant based absorbed 110 basis points of depreciation expense associated with the capacity expansions, we added in the fourth quarter and 40 basis points of increased transportation costs.
These headwinds were almost entirely offset by increased revenue and productivity gains, reflecting our investments to drive scale and efficiency.
Raw material pricing did not have a material impact on plant based gross margins because of the weighting towards the co manufacturing customers, which tend to operate under pass through pricing arrangements for all of raw material inputs.
Gross margin in the fruit based segment was seven 1%.
Paired to 7% last year, an increase of 10 basis points.
Our near term focus in fruit base continues to be optimizing profitability through a combination of rationalizing the marginal business.
Proving productivity.
<unk> costs out of the business and focusing the business around our large retail customers.
Operating income was $1.7 million in the second quarter compared to a loss of <unk> 4 million in the prior year.
SG&A increased point of 8 million for three 8% to $22.7 million as integration expenses related to the dream and Westfalia acquisition were partially offset by lower variable compensation costs.
Lots of attributable to common shareholders from continuing operations for the second quarter was $1.7 million for two cents per diluted share.
Compared to a loss of $7.7 million for nine cents per diluted share during the second quarter of 2020.
Note that this quarter's loss is after giving effect to $4.7 million of other expense charges, primarily related to the exit of our south gate fruit processing facility.
Paired with other income of point of $8 million last year.
Yeah.
On an adjusted basis second quarter 2021 earnings were <unk> 1 million or zero cents per diluted share for.
Versus an adjusted loss of $7.9 million for nine cents per diluted share in the prior year period.
As Joe mentioned, adjusted EBITDA was $16.1 million compared to $10 million in the prior year, a 68% increase.
I'd like to remind listeners that adjusted EBITDA and adjusted earnings are non-GAAP measures and a reconciliation of these measures to GAAP can be found towards the back of the press release issued earlier this morning.
Turning to the balance sheet and cash flow.
As of July three 2021, total debt was $206 million down approximately $243 million from the second quarter of 2020 and up $69 million from $137 million at the end of the first quarter due to the seasonal build of fruit inventory along.
With the acquisition of the dream in West relay brands.
Total debt reflects $159 million drawn on our asset based credit facility with the balance representing smaller credit facilities lease and other financing arrangements.
Leverage stood at three times at the end of the second quarter versus $6 three times a year earlier.
From a cash flow perspective cash used in operating activities. During the second quarter of 2021 was $39.1 million compared to cash generated of $2.7 million during the second quarter of 2020.
The change in operating cash flow versus last year was due to a stronger seasonal build of fruit inventory and more expensive inventory compared to this time last year.
Cash used in investing activities was $32.4 million compared with $6.3 million in last year's second quarter, reflecting the acquisition of Dream and Westwood.
Prior to providing our outlook I'd like to spend a few minutes on inflation is this remains the major area of discussion across all industries.
The potential impact of inflation on our business varies across three categories, which are one raw materials.
To operating costs and three supply chain costs the.
These three categories have different impacts based on how we go to market, which are one private label too.
Two from manufacturing and three branded products.
For example, in our plant based business a significant amount of our revenue is true co manufacturing arrangements for our customers typically bear most of the risk of price variation in raw material costs. In contrast, our fruit based business is more concentrated in private label products, where price pass through.
<unk> tends to lag and where we are largely but not fully insulated from increases in raw material prices.
In branded products, we did not experience any material inflationary headwinds for the quarter the changes in commodity prices would need to be offset by pricing and productivity gains.
When we look at plant operating costs, we bear those costs entirely so any inflation must be offset by plant productivity initiatives.
Finally, when we look at supply chain costs or more specifically freight.
There is limited risks with our co manufactured products, because it's largely picked up by customers. So they bear the impact of changing freight rates.
The opposite with our private label business.
We are typically delivered and the products of the customer, noting there is some opportunity to pass along cost increases, but again, its more limited and often lags and timing.
Lastly in branded products, we are exposed to changes in freight costs and need to offset those with productivity gains.
In summary, like everyone. We are facing rising costs in many areas, but the most meaningful areas to us today are more associated with our fruit based and branded businesses because of the deliberate nature of the product and we must absorb much of the outbound transport.
Our plant based business is largely insulated.
In total given our increase in overall margin, we have demonstrated our ability to grow gross profit and EBITDA, despite an inflationary environment.
At this time, we don't see any inflationary trends in our business that would dramatically impact. This progress as we go into the second half of 2021.
Let me close by providing some commentary around the outlook for the second half of 2021.
Obviously, there is uncertainty surrounding the impact of COVID-19, and the potential changes in consumer behavior as a result, but based on our current expectations. We offer the following outlook.
On the top line, we forecast the plant based to look similar to Q2 in terms of year over year growth.
For the fruit, we similarly think revenue will look like Q2 with single digit declines.
From the margin standpoint, it is very much the same story with plant based remaining in the high teens and fruit being similar to last year's margin levels, recognizing we have more challenging comps in the back half.
Finally from an EBITDA standpoint, we forecast strong year over year improvements again, recognizing our comps get tougher in the second half where last years second half represented 60% of 2020 EBITDA.
Before opening up the call for questions. Just a reminder that for competitive reasons, we do not provide detailed commentary regarding customer for SKU level of activity.
With that I'd ask the operator to please open up the call to questions.
At this time if you have a question. Please press Star then the number one I know the telephone keypad.
And your first question comes from Andrew <unk> with BMO.
Hey, good morning, Thanks for taking the question.
My first one is about your commentary around the competitive moat and competitive dynamics.
And it certainly sounds from the from the data points that you provided like everything is in a good place and the bench mentioned some ways that you are building your competitive installation, but yes.
Can you talk about what drives your competitive moat, where your share.
What youre doing to build that competitive installation and if you've seen any changes in competitive dynamics kind of over the last several months or quarters.
Thanks, Andrew and good morning.
In terms of the changes in the competitive landscape, we have not seen anything material. So.
Part of this year.
In terms of how we view our competitive differentiation in the marketplace.
We were particularly proud of the strength of our R&D organization and our ability to partner with Big CPG companies to drive innovation and deliver the quality that they expect day in and day out second is we have very deep long relationships with our customers.
And third we believe we have a very advantaged supply chain and certainly the project that we referenced in in Texas is of major strategic unlock for us against our priority of doubling the plant based business.
The supply chain advantages for that.
That affords us along with adding capabilities.
As well as cost and sustainability Differentiators is is going to be just of further strengthening of our business model. This gives us plant.
Or within the 100 miles of four of the five biggest states in the U S with Texas of course being the second biggest state in the U S and so we're excited about that as the further insulator for the business.
Okay. That's helpful and then.
On the outlook for the.
Fruit based segment.
Is the change from a top line perspective relative to what you've communicated prior is that really related to the pricing that you mentioned or are you seeing some underlying improvements whether it's in the fruit snacks that you mentioned or otherwise.
The.
Look underlying has actually improved.
Yes.
As referenced.
We're optimistic and have great momentum in the fruit snacks business.
The frozen fruit in 2020 had some pretty major volatility from a COVID-19 standpoint, and so.
We're seeing some return to normalization if you will in the in the retail landscape and so we think.
Those two factors combined.
Afford us the opportunity to <unk>.
Deliver a pretty solid back half number.
Relative to the SKU and customer rationalization that we've done share that makes sense and then just lastly from me is there any other detail you can provide on the on the kind of Mega facility that youre talking about with respect to either.
Cost of products or.
No youre expanding your R&D capabilities with the new facility or excuse me the new headquarters. So you know I'm not sure if that plays into it but just any any kind of color around that would be helpful. Thank you.
We'll get into unpacking that as we get kind of closer I mean, where we're at the stage now I mean, we're on the doorstep hopefully of signing the lease here.
And we've done site selection, we have kind of broad understanding around capabilities that we're going to put in.
But the.
This facility is really an unlock for growth in 2023 and beyond and so I think it's probably more appropriate for us to kind of hold on specifics there until we get closer.
So hopefully that makes sense yeah, absolutely. Thank you very much.
Your next question comes from Jon Andersen with William Blair.
Hey, good morning, Joe and Scott.
John Good morning.
Okay, a lot of areas, we could go into let.
Let me start by asking a little bit about foodservice, which was.
The strong channel for you in the quarter, obviously youre getting help from the.
The kind of the rebound in the channel.
You did call out of.
Customer in the prepared comments I think your largest customer and referenced.
Both based products.
I think there's plano based products for them is that new and is that durable.
Yes that is.
That is new with <unk>, we started.
Shipping out to Starbucks in the middle of the second quarter were playing a secondary supplier role there.
We're pleased that we were able to step in and help our largest customer with one of our son opt the branded products I know some of the folks on the call have seen that product in stores and have asked us about it.
So we were we felt fortunate that we were able to step in and help them in.
In terms of durability we.
I would fully expect that we will be in a position to continue to help them well into 2022.
Okay. Thanks, that's super helpful.
<unk>.
And then.
You mentioned that.
I thought it was interesting you kind of called out.
Brands your own brands in the a little bit more I think than you have in the past, even noting that they are playing an increasing lee important role.
In the portfolio from a contribution perspective could you talk a little bit more about that and how you kind of.
Do that in a way.
That allows you to remain kind of customer agnostic as well.
Yeah.
Obviously with the acquisition in mid April the revenue that we realized.
100% incremental and so.
Brand delivered.
The acquisition delivered five points of the 21 points of growth that you would have seen and so we felt it was appropriate to call that out.
I would tell you to date the.
Our brand initiatives have been additive with no subtraction.
The integration is going well the sales volume.
It's coming in is it exactly as we've expected.
We're very focused on non cannibalistic growth levers and trying to push on.
Non cannibalistic activities with respect to our large co manufacturing customers.
And.
Really what I can tell you is.
Since the acquisition of all of the activities with our major co manufacturing customers have all been around deepening and lengthening our partnership.
Okay. Thanks.
Thank you of that.
I did also want to ask sorry, I'm circling back around to you.
Some of you made a comment on a multiyear extension.
With the.
The co man for the largest I think.
The brand of the U S did I hear that one right and that's out of.
How new is that and what kind of duration or visibility does that that new arrangement kind of provide you and is that kind of part of the calculus for the the green field. The facility in Texas, you just seen in aggregate more demand longer.
Relationship durations from from Big customers and plant based.
That is not a new relationship for us that has been.
Our long standing relationship with.
The company that is currently running the leading national brand in all of milk in the U S and it was a multiyear extension.
Okay.
Okay.
I guess both of the last question I'll pass it on is around just the outlook.
I think last quarter.
Maybe a little off from this but last quarter you may have said.
That you expected strong double digit EBITDA growth in 2021.
I think today you said.
Our EBITDA growth.
Without the double digit I might just be parsing words, but has the outlook changed at all.
The.
You know in terms of.
EBITDA in the second half for for the full year relative to kind of your initial expectations of our expectations as of last quarter. Thank you.
Hey, John It's Scott Good morning, I'd say no. The outlook has not changed I think what we want to recognize is that the comps obviously get a lot tougher in the back half I think I pointed out.
60% of for the last years EBITDA was in the second half so no change in outlook just on a comparative basis of tougher set of comps that that's really the takeaway.
Okay. Thanks very much.
Your next question comes from Alex Fuhrman with Craig Hallum Capital.
Great. Thanks, very much for taking my question wanted to talk a little bit more about oat milk I think that's pretty amazing that it's driving half of your revenue growth in plant based considering it's still a relatively small category can you talk about where that growth is coming from.
Has that been more grocery or foodservice and then as we think about the capacity you have coming online over the next year or two both the new Texas project that you alluded to today is as well as some of the other previous.
<unk> previously announced the projects that Havent come online yet how much of that new capacity is going to be related to oak.
So the first part of your question in foodservice or retail the answer is yes, we're seeing strong <unk> growth.
In both.
Retail sales co manufactured brands is that predominantly sell into retail so that was the strong growth fiber growth lever excuse me as well as <unk>.
Significant growth in our foodservice.
Sales of the old now because of both channels were strong drivers of vote.
Certainly relative to the capacity additions.
That is a network answer in that yes, those projects will absolutely enable further growth in <unk>.
Okay, Great that's really helpful.
And then just thinking about.
Your different customers and channels it sounds like.
The retail grocery store business continues to be strong, even even as you're lapping tough comps related to the pandemic last year, what does that look like as you kind of move into the third and fourth quarter, presumably foods.
Foodservice is going to continue to recover on the other end of the pandemic or are you expecting maybe some choppiness.
As you know kind of the push and pull between retail and foodservice plays out or has it been pretty much smooth sailing so far.
As the channel shift.
Q2, the Q2 overlapping foodservice was by far the biggest.
Overlapped anomaly that we experienced last year and so we would see it returning to kind of more historical levels and more.
Traditional overlaps and that's why we've shared some of the 2019 numbers as we've gone through this as well as obviously, it's a little bit easier to compare to the pre COVID-19.
<unk> of the business than always trying to explain the crazy overlaps from from last year.
Great that's really helpful. Thank you.
Your next question comes from Mark Smith with Lake Street capital.
Hi, guys a couple of questions from the first off you've talked about inflationary pressures that youre seeing kind of across the board can you talk about your ability to take price and your branded products.
Yeah, you know as Scott referenced we have not experienced any major inflationary pressures on the on the branded side of things.
What I would say is obviously the U S retailers are certainly on the receiving end of significant.
Price increases from many many many brands. So I don't think it would be in the odd conversation. If we found ourselves in call. It six months time, having to go into the grocery retail environment and take the price increase but as Scott referenced as we sit today, we do not.
Foresee any material inflationary pressures on our branded products that would require us to take a price increase.
Okay, Great and then as we look at the fruit business you guys talked about some of the headwinds that you face there.
Anything you can give us on kind of your outlook and what it what it would take determined this business profitable again.
Yeah.
Sure.
Kind of of a summary of of the season I mean, we met our pack plan. So we.
We processed as much fruit as we need for the next 12 months the.
Of the plants ran better than prior year, but the cost of the fruit, meaning the price that we paid to the growers was significantly higher than previous years really as a result of just the really skinny inventory positions that everybody in the industry had produced a bit of.
Have a of.
The pricing frenzy, if you will.
That lasted for the entire season, we obviously feel like over time, we can get that pricing moved through to our customers, but we pay for the fruit all upfront and then we realize the pricing over 12 months. So.
But in.
In total I mean, we feel like we can get the majority of them.
The majority of that higher cost free passed onto our customers. It just not an overnight.
No overnight activity, so Scott anything to add there I would say prospectus helpful. I think the.
For the two headwinds writer, Joe just I think accurately summarized free pricing, but also the.
The peso strengthening is also a bit of headwind because remember the bit of a large facility. We've just run of 50% more for it through down in Mexico, I think when I reflect on it I'm pleased that we've I think we've told the right strategic levers free.
Three times more sourcing of freedom of South America, 50% more processing in Mexico, That's obviously cost advantaged relative to our U S footprint and then.
Automation running through those plants, the footprint consolidation and the SKU rat work, we've done I think we've pulled the the appropriate levers I think the the key will be just the timescale of of the development of those price increases.
And looking at the fruit snack business, that's doing well is there just not enough to really.
Drive that business higher to make up for some of the headwinds that you face in other places and then if you could talk about the new businesses that just <unk>.
Timing that that's going to take a couple of quarters of before we see any impact from that for those new products.
Yes, I mean, we the fruit snacks business.
A small but mighty growth.
Ever for the business right now that we are looking to continue to invest in and drive expansion.
Incredibly bullish about the innovation potential in that business in the and the customer relationships that we have so it is kind of full steam ahead on the fruit snacks business.
It's not as large as our frozen business and therefore, just the levering effect will take some time.
In terms of the bowls products.
Share that in the context of one of our three strategic priorities in fruit is moving towards more value added.
Our portfolio of products and so yeah, I mean, we have the product in the.
The distribution right now, but it certainly takes.
I would say north of four quarters for retailers to do resets, the authorizations et cetera. So.
Unfortunately, they are not aligned in their timing as to when they do reset but.
We've had great reception for the product so far.
Excellent. Thank you guys.
At this time there are no further questions I will now hand, the call back for closing remarks.
Great well. Thank you everyone for your interest and so now we appreciate it and wish everyone a great day. Thank you.
That concludes today's conference. Thank you for your participation you may now disconnect.